Don't Count on Lower Land Rents Despite Downturn
While overall cash farmland rents went up slightly in the last year, the average paid declined. That dip is expected to sharpen in the coming year, according to a new report by an Illinois economist. How sharply those prices fall depends largely on the management of that land, and that means your rent may not fall like you think it should.
The rent fetched for "excellent" professionally managed land -- that capable of raising 190-bushel-per-acre corn -- was just shy of $400 an acre in 2013. That went down by just over $20 an acre this year, but is expected to fall from $374 to $338 per acre in the next year, according to Illinois Society of Professional Farm Managers and Rural Appraisers data in a report by University of Illinois Extension ag economist Gary Schnitkey. That trend is about the same for average, good, and fair land, three categories that range in corn potential from 190 to less than 150 bushels an acre.
These numbers more closely reflect other market conditions in grain production; land that's professionally managed is more apt to follow trends in income.
"Decreases for professionally managed farmland stands in contrast to average cash rents, which increased from $224 per acre in 2013 to $234 per acre in 2014. Farm managers follow agricultural markets, likely much more closely than land owners without management. As a result, farm managers likely set rents closer to those suggested by market conditions. Cash rents on professionally managed farmland increased faster than average cash rents between 2006 and 2013, when returns rose as a result of higher prices," Schnitkey says. "Now that prices have decreased from levels experienced during 2009 through 2013, farm managers are lowering cash rents. On farmland that isn't managed, there may be considerably more of a lag in the relationship between changes in returns and changes in rent levels."
Don't use a professional farm manager on your rented acres? The numbers are a lot different, then; overall, recent USDA-NASS data show overall average cash rents were actually slightly higher this year than in 2013. Though these figures don't follow along with the data for professionally managed land (overall, they increased 5% in the last year, continuing a string of consecutive increases since 2006), they too are expected to slide in the next year.
When it comes to farmland values and land rents, Illinois has a lot of variability. From the high-productivity land in the northern and central part of the state to the less productive land in the southern part of the state, land rents paid can range by more than $200 an acre. It's largely a reflection of the range in crop potential. Then, there's a lot of variability in rents in a given area regardless of the land's productivity. That variability makes it tough to use statewide data like this to forecast whether rents will rise or fall in a given area. Though they're expected to fall on a statewide level, that doesn't necessarily mean you should expect cheaper rents in the next year.
"Projections are for much lower returns in 2014 and 2015. Even with decreases in cash rents projected by the Illinois Society, farmer returns would be projected to decrease because returns have decreased more than cash rents," Schnitkey says. "There is a considerable range in cash rents for similarly productive farmland within a small geographical area, with some rents above the average by $100 and other rents below the average by $100. Below-average cash rents could continue to increase to 'catch up' with average levels. At the same time, above-average cash rents could decrease, as indicated by results from the Illinois Society. These two forces could counter each other, leading to stable or maybe even increasing average cash rent levels."